Wednesday, January 18, 2012

False use of (R) symbol as false advertising

Perfect moved for leave to amend its complaint against
Majestic to add claims for misuse of the ® notice and false advertising under
federal and state law to its initial unfair competition claims. The court granted the motion in part and
denied it in part.

Perfect began the case claiming that it was the prior owner
of MAJESTIC and MAJESTIC PEARL for jewelry.
In discovery, Pearl learned more about Majestic’s activities: it argued
that it found out that Majestic falsely used the ® after its registration
expired, and falsely claimed the registration on its website as a point of
distinction from Perfect.

Since a scheduling order had already been entered, leave to
amend required good cause, meaning that Perfect needed to show that it had been
diligent and neither knew nor should have known the relevant information
before. The court found that Perfect had
shown good cause for delay in adding allegations based on continuing use of ®
on Majestic’s promotional materials, but not for new claims based on content on
Majestic’s website. A late deposition
(whose lateness was largely due to problems on Majestic’s side) revealed that
undated materials using the ® had been produced in large numbers and were still
in use, even though the registration lapsed in March 2008, more than 2 years
before the present suit was filed. The
court stated that, even if the materials were produced before cancellation,
continuing to supply them to customers long after the registration expired
might constitute false advertising.
However, “it would have taken Perfect little investigation and probably
no more than 15 minutes' time to determine that Majestic's publicly-accessible
website continued to falsely claim registered trademark status.” Thus, it was too late to add allegations
based on the website.

Majestic also argued futility: misuse of trademark notice is
only an affirmative defense, not a freestanding cause of action, so that claim
was not allowed. But the Lanham Act
false advertising claim was not merely, as Majestic argued, a claim of trademark
misuse. The court quoted McCarthy: the “use of ... the ® adjacent a mark not
federally registered is ... a form of false advertising which may result in
serious repercussions.” Perfect’s
allegations satisfied the federal pleading standards. Majestic argued that Perfect needed to show
willfulness to bring a false advertising claim predicated on misuse of a ®
symbol; even if that was true, which the court did not resolve, Perfect had
adequately pled facts to support an inference of willfulness. Perfect alleged that Majestic knew for more
than two years that it did not own an active registered trademark, persisted in
disseminating promotional materials with the ® symbol to potential customers.

Majestic also argued it would be prejudiced by the addition
of new claims because of significant additional required discovery. But Majestic only identified one issue as to
which additional discovery might be required: its own intent. “Any discovery as to that issue would,
presumably, be sought by Perfect—for Majestic should have accessible to it the
evidence bearing on its own state of mind—and Perfect represents that it is not
seeking additional discovery.” Granting
the motion wouldn’t extend the litigation much—the court pointedly noted that
the motion was pending for far shorter than the time it took Majestic to
produce the Rule 30(b)(6) witness who provided the key information that led to
the motion for leave to amend.

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